Monday, April 17, 2006

The recent protests in France have been, for me, a landmark event in the slow rightward drift of my politics since my days of hanging out with socialists in Boston. The French government’s proposal to make it easier for companies to fire recently-hired young employees seems fundamentally reasonable to me. If the reports of rampant unemployment and reluctant entrepreneurship are true, then it would seem that the degree of employment regulation is so burdensome that it counterproductively harms social stability.

This Contrat Première Embauche, or "first employment contract," which Prime Minister Dominique de Villepin introduced in February, makes it easier for large companies to dismiss people under the age of 26 who have been employed for less than two years. It is intended to make hiring young people a less frightening prospect for employers, who pay high social security charges on every worker and face an onerous and expensive process if they want to fire someone....everywhere, on stickers, signs, and T-shirts, and shouted through bullhorns, the demonstrators declared themselves to be "contre la précarité!"

Against precariousness, instability, uncertainty. I'm trying for the kindest translation here, but even so, the sentiment is hard (for an Anglo-Saxon capitalist) to take seriously....This echoed something a boy outside the McDonald's had told me, when I asked him what he thought should be done about unemployment. "It's the leaders' responsibility," he said. He wore a sticker that said, "Rêve Générale," a play on "Grève Générale." It means, instead of "general strike," "general dream."

This was dreamland all right... The leaders could figure out how to cope with economic reality—never mind that the CPE was their small attempt to do so.

Eaves’ rhetorical trick--get a stupid quote from a stupid marcher, and use it to condemn the march--is straight bush league, but her description of the “Reve Generale” stickers is unsettling to me. I like that spirit of hope and refusal to accept the limits of political economy, limits that we’re told are immutable. I have worn similar stickers. But at the same time, I agree with Eaves that it is childish to think that civilization, which has always been hindered by these limits, will benefit in any way from my hope.

Our societies need innovative takes on political economy, such as the Saturn-Patagonia-Ben & Jerry’s model of committed employment (and mixed success), the eBay economy, or the ability for English-proficient third world workers to do customer support for American companies using voice over IP. Most of these aren’t as sexy as microlending, but they allow people to make a living in ways they couldn’t before, ways that they prefer to the older options.

Generally free markets do foster a rat race, and all of the downsides of capitalism. And surely many things--old-age support, emergency health care, policing, education--are much better served by forced taxation and government oversight than by pure market approaches. David Galbraith quotes a Parisian student, Victor, explaining why he opposes the CPE: "It means that when I do get a job I will basically have to work as hard as I can to keep it." It’s an embarassing quote, but he’s got a point that that struggle comes at a cost--if not on net, then at least on gross. Stagnant economy or not, don’t the French balance work and life better than we do in the US?

In any case, we must basically be able to hire and fire, buy and sell, invest in yourself or others, and start a company to conduct business; Amartya Sen convincingly called these human rights in his book Development as Freedom.

To an Anglo-Saxon economist, France's current problems do not seem particularly mysterious. Jobs in France are like apartments in New York City: Those who provide them are subject to detailed regulation by a government that is very solicitous of their occupants. A French employer must pay his workers well and provide generous benefits, and it is almost as hard to fire those workers as it is to evict a New York tenant. New York's pro-tenant policies have produced very good deals for some people, but they have also made it very hard for newcomers to find a place to live. France's policies have produced nice work if you can get it. But many people, especially the young, can't get it....But what is mysterious about France is that as far as one can tell, absolutely nobody of consequence accepts the obvious diagnosis....France, say its best-selling authors and most popular talking heads, is the victim of globalization--although adroit use of red tape has held imports from low-wage countries to a level far below that in the United States (or Britain, where the unemployment rate is now only half that of France). France, they say, is the victim of savage, unrestrained capitalism--although it has the largest government and the smallest private sector of any large advanced country.

In 1997, I marched at Columbia University with other students to protest the administration’s demands for the new clerical workers’ contract. These demands included the reintroduction of a small amount of merit pay, which had been removed years before after claims that it encouraged discrimination, because merit is hard to separate from racial and other prejudices.

I wouldn’t protest the same proposal today. In my experience working for both non-profit and for-profit organizations, there are so few competent people that discrimination isn’t powerful enough to keep down a valuable employee. For the sake of a small risk of discrimination, Columbia was forced to abandon its plan to reward excellent performance.

The productivity increase such a plan could have introduced is nothing to laugh at, if you believe recent studies that have documented success in merit pay. Austan Goolsbee, again in Slate:

Companies in Chile pay bus drivers one of two ways: either by the hour or by the passenger. Paying by the passenger leads to significantly shorter delays. Give them incentives, and drivers start acting like regular people do. They take shortcuts when the traffic is bad. They take shorter meal breaks and bathroom breaks. They want to get on the road and pick up more passengers as quickly as they can. In short, their productivity increases.

They also create new markets. At the bus stops in Chile, people known as sapos (frogs) literally hop on and off the buses that arrive, gathering information on how many people are traveling and telling the driver how many people were on the previous bus and how many minutes ago it sat at the station. Drivers pay the sapos for the information because it helps them improve their performance....Some passengers also complain that the rides make them nauseated because the drivers stomp on the gas as soon as the last passenger gets on the bus. Yet when given the choice, people overwhelmingly choose the bus companies that get them where they're going on time.

Goolsbee argues that "You can't easily use incentive pay on art teachers or politicians, whose success is hard to measure." Incentives for teachers is a very old idea that has been tried in various forms over the years, and proposed most recently by Mitt Romney in Massachussetts, but the difficulty of measurement leads to some unfortunate results.

Nonetheless, Democrats who are trying to win back the initiative on policy from Republicans after 12 years on the defensive proposed a form of teacher incentives in a recent Heritage Foundation report. The teachers’ union in my hometown would have gone nuts, and once I would have agreed with them, even though I knew from experience that most were lousy teachers. I'm not sure if I'd defend them today.